LEWISTON — Dozens of companies that employ thousands of workers around Maine could be facing massive gaps in their budgets next year if Gov. Paul LePage’s plan to change the state’s Business Equipment Tax Reimbursement program moves forward.
Part of the governor’s two-year budget suggests lawmakers end the program that reimburses businesses for personal property taxes they pay on equipment they need to operate.
Instead, LePage would exempt businesses from paying the tax in the first place and reimburse towns and cities for the revenue losses under another state program known as the Business Equipment Tax Exemption program, known as BETE.
The catch is that towns and cities would be reimbursed by the state at 60 percent of what they would have collected in taxes from businesses. Under BETE, that amount would drop to 50 percent over time.
The change would cost cities and towns. Lewiston, for example, would lose $897,000 in 2014 if the LePage proposal moved forward, City Administrator Ed Barrett said. He said combined with other proposals in the governor’s two-year budget plan, there will be no way for cities to make up the losses without raising local property taxes.
“We could close City Hall and not come close to making up the difference,” Barrett said Tuesday. “I could eliminate the Police Department or the Fire Department and solve the whole problem, but obviously you can’t do that. It’s going to be very difficult for cities like Lewiston and Auburn to absorb that level of cut.”
The other catch is that BETR reimbursements would be frozen for any taxes paid in 2013, which means big companies that get big reimbursements, including Verso Paper, Bath Iron Works and Tambrands, would receive no reimbursements in 2014, according to Michael Allen, an associate director of tax policy at Maine Revenue Services.
In many ways, LePage’s proposal is better for businesses in the long term, Allen said. It streamlines the personal property tax exemption by allowing them to keep their money, rather than paying it and then applying to get it back.
It also would allow businesses to fully and indefinitely exempt that property from taxes, while the current program reduces the amount any business can be refunded over time. After 12 years, under BETR, a company can get reimbursed for only 70 percent of the taxes it pays on personal property.
A program of former Gov. Angus King, BETR was intended to encourage businesses to make capital investments that were aimed at growing and retaining workforces.
King, now a U.S. senator, declined to comment on the LePage proposal Tuesday but did address the issue during his campaign for the U.S. Senate.
In a September report by the Maine Center for Public Interest Reporting, King defended the program, noting a $500 million investment made by National Semiconductor in South Portland. King said that investment would never have occurred without BETR.
National Semiconductor still receives a property tax reimbursement under the program. Last year, according to Maine Revenue Services online files, the Santa Clara, Calif.-based company was the fifth-largest beneficiary of the program and was paid a $1.96 million reimbursement.
Verso Paper, based in Memphis, Tenn., was the top beneficiary of the program and was reimbursed more than $4 million.
Lisa Martin, executive director of the Maine Manufacturing Association, said reaction to the governor’s proposal from members had been mixed.
Some thought a one-year loss of the reimbursement would be devastating, she said. Others thought the governor’s idea was excellent because it would allow them to keep their cash up front instead of having to pay it out and then try to get it back.
Part of the issue for those who see the change as hurtful has as much to do with consistent tax policy as it does with money, Martin said.
Verso Paper spokesman Bill Cohen said the proposal is another threat to the 35,000 paper-making jobs in the state. Cohen said the change which would cost Verso more than $4 million in 2014.
He said Verso wouldn’t see any payback until 2017 and the change wouldn’t be fully made up until 2021. He said over time, and largely because BETR was in place, Verso had made more than $100 million in capital investments at its mills in Jay and Bucksport.
“And now, once again, there’s a move to kick them out from under us,” Cohen said. “No wonder we have a terrible reputation as a state in which to do business. People look at the rules and, ‘Oh, oops, we really didn’t mean it.’ That hurts.”
Cohen said losing the reimbursement for 2014 would mean Verso would be unable to fund a work-training partnership with the local technical high school in the Bucksport area. The program is aimed at training young people with the technical skills they need to work in the paper industry.
Cohen said companies that receive the most under the program are also the ones that made the biggest investments in Maine.
“Every one of those companies made a major investment based on a whole bunch of factors and now those factors are into the realm of uncertainty,” Cohen said. “And here we go again with another shot at the pulp and paper industry. Is it wishful thinking that we do turn into the shoe industry or the textile industry and just go away? Do we want to just lop off between 8 and 14 percent of our gross domestic product? I don’t think so.”
Top 10 beneficiaries of BETR program in 2012
1. Verso Paper, Memphis, Tenn., $4,062,513
2. Bath Iron Works, Bath, Maine, $3,436,124
3. SD Warren, Boston, Mass., $2,879,843
4. Katahdin Paper, East Millinocket, Maine, $2,416,347
5. National Semiconductor, Santa Clara, Calif., $1,967,855
6. Nestle Waters North America, Norwalk, Conn., $1,848,025
7. Twin Rivers Paper, Madawaska, Maine, $1,503,628
8. Tambrands, Cincinnati, Ohio, $1,332,517
9. Madison Paper Industries, Madison, Maine, $1,143,740
10. Hannaford Bros., Salisbury, N.C., $1,092,151.
** 95. Lewiston Sun Journal, Lewiston, Maine, $67,962